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Blog Urgent Warning: British Rents Projected to Surge by 13% in Three Years, Outpacing Earnings Growth

23 Apr 2024

A concerning new report indicates that British renters are facing a steep climb in housing costs, with rents expected to surge by as much as 13% over the next three years. This increase is anticipated to outpace earnings growth significantly, exacerbating affordability issues for many across the nation.

Published by the Resolution Foundation, the report titled “Through the Roof: Recent Trends in Rental Price Growth” suggests that the sharp rise in rents is partially a rebound from the pandemic’s economic effects. During the pandemic, rental prices fell to historic lows relative to earnings, a trend now correcting itself as the market stabilises.

Source: Price Index of Private Rents and UK House Price Index from the Office for National Statistics

According to the analysis, the fluctuation in rental costs—initially dropping and then rebounding—can be traced back to the pandemic-induced halt on evictions and repossessions, causing significant disruption in the rental market. As the nation navigated through these unparalleled circumstances, a return to a more typical long-term rent-to-earnings ratio became inevitable, marking what the Foundation terms a “post-pandemic correction.”

This correction, combined with historically high nominal earnings growth, has resulted in rapid increases in rents. Although the rate of increase for new tenancies is beginning to cool — dropping from a year-on-year growth of 10.4% in June 2023 to 7.5% by March 2024 — the overall impact on the rental market is expected to be prolonged.

The findings from the Foundation serve as a sobering reminder of the hurdles looming ahead for renters, particularly newcomers or individuals nearing the conclusion of their current tenancies, who could encounter substantial rent hikes. These anticipated increases are poised to hamper renters’ capacity to save and plan for their futures, further exacerbating the pressure on living standards already strained by the escalating cost of living.

In response to these challenges, policymakers and housing advocates are calling for decisive action. Proposals include more robust support mechanisms through the benefit system, pro-growth tax measures to boost housing supply, and legislative reforms to provide greater security for renters.

The government has outlined measures in its Renters (Reform) Bill to offer more stability and protection for renters and remains committed to a significant investment in affordable housing. However, with the cost of renting expected to continue outstripping income growth, the need for comprehensive and effective solutions is more urgent than ever.

This report serves as a crucial call to action for all stakeholders involved in the housing market — from government officials and policy makers to landlords and tenants — to collaborate on finding sustainable solutions to ensure that the housing crisis does not deepen further.

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